Local governments battle state for property tax revenue
Frustrated with the roadblock at the state level to reverse the property tax shift of the early 1990s, a group of local government advocates is taking it to the people.
The California CAUCUS for Cities and Schools, a political organization based in Covina, Calif., is seeking the support of cities throughout California for an initiative to redistribute sales taxes from the state to local governments.
“This initiative would allow any city or county to put a measure before voters to decide whether one cent of the present sales tax currently going to the state should go back to the city or county on a per capita basis,” said Cary Kalscheuer, president of CAUCUS. “We think it’s a measure that is needed in many areas of the state to remedy the problems created by the state over the past 20 years.”
History of state takeways
The measure is based on bills introduced to the state Legislature over the past two years that either died or were vetoed by Gov. Pete Wilson. Since a portion local government property tax revenues were shifted to the state to pay for schools during the 1991-92 budget crisis, cities and counties have lost about $3.4 billion. The state for the past two years has been operating on a budget surplus and has given no relief to local governments.
State officials claim that reversing the property tax shift or capping the fund will jeopardize vital state programs such as health and welfare, higher education and law enforcement.
City leaders uncertain
In South Lake Tahoe, the annual loss to the state is more than $1 million – about the same amount eliminated in budget cuts this year.
While city leaders agree something needs to be done, they are uncertain about whether this particular initiative is the best solution for South Lake Tahoe.
“The concern is that if this were to prevail, Sacramento would think the problem was solved, and would not return to South Lake Tahoe the money it lost,” said City Manager Kerry Miller. “Our position is we would like to see the state return the property tax revenue that it confiscated.”
Because South Lake Tahoe is unique to other cities in many ways, it may not be in its best interest to support the measure, he said.
“We get a lot of financial support through the state of California to maintain our road systems. If we were to advocate this, it may send the message to the state that we don’t need as much support from them as we did in the past,” Miller said. “Also, because of the tourism nature of the city, we generate a lot more sales tax than we would get back based on proportionate population.”
According to estimates by CAUCUS, the initiative could bring the city up to $2.3 million per year in additional general fund revenue without a tax increase.
At the Sept. 2 City Council meeting, city leaders declined to support the measure until more information became available. They directed Mayor Tom Davis to explore the issue when he attends the League of California Cities general conference next month.
Some money is better than no money
Kalscheuer said there is no reason local governments should not support the initiative, seeing as how nothing has gotten done at the state level.
“This is revenue augmentation – you’re not getting it now, it’s going to state of California,” he said. “The state has been taking money away from cities, increasing their revenues without allowing voters to vote on those shifts in taxes.”
He said the takeaways have forced cities to go to the voters and impose taxes and fees for critical public services, which should be paid for through property and sales tax revenue.
“The state is playing a game with the cities – looting them of money they have and forcing them to raise taxes at the local level,” Kalscheuer said. “If cities want to continue to allow the state to play it, that is a conscious decision they’re making. If they don’t support that resolution, they are perpetuating the circumstances they’ve been suffering with for the past 20 years.”
The measure would also protect the existing one-cent going to cities based on point-of-sale.
“Some cities are afraid the state will change that method or reduce it, but this initiative prohibits that being affected by legislative action,” Kalscheuer said.
He added that revenue projections indicate the state would not have to undergo any major budget cuts as a result of the initiative’s passage, and the impact would be phased-in over a five-year period.
No official position from league of cities
The League of California Cities has not taken a position on the issue because it has not yet been fully analyzed. While the item is not on the agenda for the annual conference, it will most likely be discussed informally, said Julie Marengo, communications director for the league.
“The state over the past five years has taken away billions of dollars from local governments, and it’s happened again this year even though it had a surplus,” she said. “The fact that they are going to the people is obviously a sign of the real frustration that our efforts at the Legislature have not been successful so far, and that frustration is understandable.”
Miller said whatever position the league takes may affect the city’s decision.
“If the league analyzed it and said this is our best bet, you might be in a position of seeing cities throughout the state say part of the loaf is better than no loaf at all,” he said. “The mechanism raises serious policy questions, but in the final analysis, it’s whatever works.”
South Lake Tahoe was one of 240 cities in the state to receive the request to pass a resolution of support. The group needs 700,000 signatures equally distributed throughout each county by February 1998 in order to qualify for the November 1998 ballot, Kalscheuer said.
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